Total demand for credit by the non-financial domestic sectors for the June quarter 2003 was $38.0b, an increase of $17.6b on the previous quarter. Demand by households was $32.1b, an increase of $11.7b from the previous quarter. Demand by private non-financial corporations was $6.7b, up from $2.2b from the previous quarter.

NON-FINANCIAL CORPORATIONS

Private non-financial corporations raised a net $6.7b mainly from share raisings of $5.1b and issuance of $2.7b worth of bonds (of which, $2.3b was purchased by rest of world). These were offset by the redemption of $0.8b in one name paper and $0.5 in loan repayments.

National public non-financial corporations repaid a net $1.6b and state and local public non-financial corporations raised $0.3b during the quarter.

GENERAL GOVERNMENT

National general government repaid a net $1.0b during the quarter, they issued $2.0b worth of bonds and redeemed $2.0b worth of one name paper. State and local general government raised a net $4.0b.

HOUSEHOLDS

Households raised a net $32.1b during the quarter, an increase of $11.7b on the previous quarter, to bring their outstandings to $686.1b at the end of June 2003. There was an increase in bank borrowing of $11.3b, up 86% from the previous quarter.

For further information about these and related statistics, contact Derick Cullen on Canberra 02 6252 6244, or the National Information Service on 1300 135 070.

NOTES

SYMBOLS AND OTHER USAGES

-

nil or rounded to zero

b

billion or one thousand million

trillionn.y.a.

one million million (i.e. one thousand billion)not yet available

NOTES ON ESTIMATES

Changes in this issue

Significant improvements to data on Registered Financial Corporations (previously known as Financial Corporations Act corporations), now sourced from the Australian Prudential Regulation Authority (APRA), were implemented from June quarter 2003. Some breaks in series in the stock (levels) data between December quarter 2002 and March quarter 2003 were identified from an analysis of parallel processing undertaken for the March quarter 2003. These breaks are under investigation by APRA, the Reserve Bank and ABS. Pending the outcome of these investigations, for the purposes of calculating March quarter 2003 transactions estimates from changes in stock data, the breaks have been treated as non-transaction changes. The series most affected is lending by other depository institutions to private non-financial corporations.

APRA has provided, for the first time, data for general insurance corporations in accordance with improved reporting requirements from September quarter 2002. Four quarters of improved data have replaced previous estimates in this publication. The new data has made feasible an improved ABS methodology for the treatment of premiums, claims and reinsurance. Where possible the revised method has been applied in back series. However, there are a number of breaks in stock data between June quarter 2002 and September quarter 2002, which are under investigation by APRA. Pending the outcome of these investigations, for purposes of calculating September quarter 2002 transactions estimates from changes in stock data, the breaks have been treated as non-transaction changes.

ABS thanks APRA and RBA for their cooperation in improving and harmonising statistics for these two important types of institutions.

Revisions in this issue

Revisions include:

those described above in "Changes this issue"

the results of reconciliation work undertaken in ABS between National Income, Expenditure and Product accounts and the Financial Accounts with regard to life insurance and superannuation fund technical reserves

the results of annual revisions to the results of the Survey of International Investment, which extend back to September quarter 1999.

Related statistics

For more information about the statistics in this publication and the availability of related unpublished statistics, contact:

Significant flows during the June quarter 2003 were the net $17.5b borrowed by households from financial corporations, the net $7.0b invested in non-financial corporations by the rest of world and the $5.2b in non-financial corporations divested by financial corporations.

Flows during year 2002-2003

Significant flows during the year ended June 2003 were the net $26.1b invested in financial corporations by the rest of the world, the net $24.7 billion borrowed by households from financial corporations, the net $17.2b invested in non-financial corporations by the rest of the world, the net $10.2b divested by households in non-financial corporations and the net $6.1b invested in non-financial corporations by financial corporations.

ANALYSIS AND COMMENTS : Market Summary

Level at endMar Qtr 2003

Trans- actionsduring Jun Qtr 2003

Other changes during Jun Qtr 2003

Level at end Jun Qtr 2003

$ b

$ b

$ b

$ b

Selected Financial Instruments

Currency and Deposits

677.0

24.9

-2.7

699.2

Short term debt securities

294.9

-0.4

-2.8

291.7

Long term debt securities

510.3

22.5

-11.3

521.5

Derivatives

131.7

1.4

22.0

155.1

Loans and placements

1 382.0

54.1

-6.5

1 429.6

Listed shares

667.1

0.8

36.5

704.4

Unlisted shares

741.6

8.5

5.4

755.5

Reserves of life offices and pension funds

508.9

7.1

18.6

534.6

General insurance prepayments and reserves

54.2

-0.5

-

53.7

FINANCIAL MARKET ANALYSIS

Deposit liabilities increased to $699.2b at 30 June 2003, following net transactions of $24.9b during the quarter, compared with transactions of $6.3b in the previous quarter. Bank deposits were up $21.6b, an $8.2b increase over the previous quarter. Deposits accepted by the rest of the world were up $5.4b, an increase of $10.7b over the previous quarter. There were withdrawals of $2.1b for other depository corporations, down $3.3b.

Short term security liabilities decreased to $291.7b at 30 June 2003, with net redemptions of $0.4b and valuation decreases of $2.8b during the quarter. $2.8b in one name paper was issued on the Australian market, while $3.2b was redeemed offshore. Bills of exchange was unchanged during the quarter.

Total bond liabilities increased to $521.5b at 30 June 2003 following net issues of $22.5b during the June quarter. Banks issued $7.3b, of which $6.0b was issued offshore. Other depository corporations issued a net $6.8b, the result of $7.0b issued offshore and $0.2b redeemed in Australia. Private non-financial corporations and national general government issued $2.6b and $2.0b respectively.

The value of derivative contracts on issue at 30 June 2003 increased by $23.4b to $155.1b, following valuation increases of $22.0b and net transactions of $1.4b.

Loan liabilities rose to $1,429.6b at 30 June 2003 following net transactions of $54.1b during the quarter. Borrowing by households continued to be strong, raising $32.0b, and financial intermediaries n.e.c. borrowed $6.4b during the quarter.

The listed share market increased by $37.3b to $704.4b at 30 June 2003, with net issues of $0.8b and valuation increases of $36.5b. Other insurance corporations had net issues of $2.2b and life insurance corporations had issues of $1.5b. This was offset by bank buy-backs of $2.2b and a reduction in private non-financial corporations of $1.5b.

The value of the unlisted share market increased by $13.9b to $755.5b at 30 June 2003. There were net issues of $8.5b, mainly due to an increase in Australian investment overseas of $3.6b. Valuation increases amounted to $5.4b.

At 30 June 2003 the reserves of life offices and pension funds were $534.6b following net transactions during the quarter of $7.1b and valuation increases of $18.6b. General insurance prepayments and reserves were $53.7b.

SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

Summary

Private non-financial corporations raised a net $2.8b (excluding derivatives and accounts payable) in the June quarter 2003. They decreased loan liabilities by $0.5b and made a net issue of $2.4b in debt securities. New share issues raised a net $1.1b during the quarter. These transactions resulted in total borrowings outstanding of $391.2b and total equity on issue of $555.0b.

During the June quarter 2003 total liabilities of national public non-financial corporations increased by $2.0b to $84.9b. There was a net redemption of debt securities of $0.2b and accounts payable increased by $0.1b. Liabilities of state and local public non-financial corporations increased by $1.0b to $139.8b.

Private non-financial corporations debt to equity ratio

From 30 June 2001 to 30 June 2003 equity on issue decreased by $31.6b. The value of debt outstanding rose $0.5b from 30 June 2001. During the quarter, private non-financial corporation debt increased by $4.4b, while equities on issue increased by $10.1b. Over the June quarter 2003 both the original and adjusted ratios remained constant. The adjusted ratio reflects the removal of price change from the original series.

During the quarter, banks increased their currency and deposits liabilities by $19.5b. They had net issuance in bonds of $6.3b, one name paper of $4.2b, and had a redemption in bills of exchange of $3.0b. They increased their loans and placements liabilities by $1.7b, and redeemed derivatives by $0.1b.

Banks had an increase of $35.3b in financial assets during the quarter. Banks loaned a net $34.4b, with notable increases in loans to households of $24.4b, and central borrowing authorities of $3.3b. They also increased their holding of derivatives by $2.1b, and bonds by $1.7b. They reduced their holdings of currency and deposits by $1.3b, one name paper by $0.8b, equities by $0.5b, other accounts receivable by $0.2b, while bills of exchange were unchanged.

Other depository corporations

The liabilities of other depository corporations decreased by $6.1b during the June quarter 2003 as a result of net redemption in one name paper of $8.7b, and a decrease in other accounts payable of $4.7b. Financial assets decreased by $5.2b through redemption of bonds of $4.2b, and loans and placements of $3.3b. These reductions were offset somewhat by an increase in currency and deposits of $3.4b.

Life insurance corporations

At 30 June 2003, the financial assets of life insurance corporations stood at $186.3b, an increase of $4.4b from the previous quarter. Transactions in financial assets were $0.3b, with increases in one name paper of $1.4b and bonds of $1.7b. This was offset by decrease in equity of $6.0b. Pension fund claims against the reserves of life insurance corporations increased by $3.9b following withdrawals of $1.9b and valuation increases of $5.8b. Other claims against the reserves of life insurance corporations decreased by $1.0b following withdrawals of $3.1b and valuation increases of $2.1b.

Pension Funds

Net equity in reserves of pension funds was $493.5b at the end of the June quarter 2003, an increase of $26.8b (5.7%), following net transactions of $10.2b and $16.6b valuation increases during the quarter. Transactions in financial assets were $10.4b, due mainly to increases in equities of $4.1b, in long term debt securities of $3.4b and in currency and deposits of $2.0b. There was a decrease in the net equity of pension funds in life insurance corporations of $1.9b

Other insurance corporations

At 30 June 2003, liabilities of other insurance corporations was $92.4b, an increase of $2.7b from the previous quarter, equity on issue increased by $4.3b following issue of listed shares of $2.2b, withdrawals of unlisted shares of $1.5b, and revaluation increases of $3.6b. Financial assets of other insurance corporations stood at $85.2b, a decrease of $1.3b, of which a decrease in equity held of $1.4b and one name paper of $1.2b were the largest contributors.

Central borrowing authorities

Total liabilities of central borrowing authorities was $101.3b at the end of the June quarter 2003. The authorities had net redemption in bonds of $3.4b and in one name paper of $2.4b. They increased their loans and placements liabilities by $2.8b.

Financial intermediaries n.e.c.

Financial intermediaries n.e.c. increased their liabilities by $7.0b in the June quarter 2003, mainly through increased loans and placements of $6.3b. Financial assets increased by $2.2b, mainly through loans which increased by $6.4b, lending to households of $5.6b. The decreases in the financial assets were caused somewhat by the sale of bonds ($1.5b) and equity ($1.4b).

Net flows of currency and deposits to banks

Net transactions in currency and deposit liabilities of banks during the June quarter 2003 were $19.5b. Sectors that significantly increased currency and deposit assets during the quarter included households $5.8b, other depository corporations $3.7b, and rest of world $3.7b. State and local general government reduced their bank deposits by $0.5b.

Asset portfolio of life insurance corporations and pension funds at end of quarter

At the end of June quarter 2003 life insurance corporations held $107.3b in shares and other equity (58% of their financial assets), of which $83.5b was in resident companies and $23.8b was in non-resident companies; $38.3b in bonds (21% of their financial assets), of which $32.8b was in Australian bonds and $5.5b in non-resident bonds; and $17.1b in short term securities (9% of their financial assets).

At the end of June quarter 2003 pension funds held $225.7b in shares and other equity (48% of their financial assets), of which $168.9b was in resident companies and $56.8b was in non-resident companies. They held $121.9b of net equity in life office reserves (26% of their financial assets); and $40.5b in bonds (9% of their financial assets), of which $30.0b were Australian bonds and $10.5b were non-resident bonds.

Financial claims between households, life insurance corporations, pension funds and investment managers at end of quarter

At the end of June quarter 2003 households had claims against the reserves of life insurance corporations of $41.1b and pension funds of $493.5b. Pension funds had claims against the reserves of life insurance corporations of $121.9b. Life insurance corporations invested $137.5b of their financial assets through investment managers and pension funds invested $187.2b through investment managers.

Asset portfolio of other insurance corporations at end of quarter

The graph below shows that at the end of June quarter 2003 other insurance corporations held $28.7b in bonds (34% of total financial assets), of which $27.1b were issued domestically. Other insurance corporations also held $20.7b in shares and other equity (24% of total financial assets), of which $18.2b was in resident corporations and $2.5b in non-resident corporations.

Central borrowing authorities net issue of debt securities

Central borrowing authorities had net redemption in bonds of $3.4b and in one name paper of $2.4b in the June 2003 quarter.

Financial intermediaries n.e.c. net issue of debt securities

During the June quarter 2003 financial intermediaries n.e.c. made a net issuance of bonds of $0.4b and a net issuance of short term paper of $0.1b.

GENERAL GOVERNMENT

Summary

During the June quarter 2003, general government transactions resulted in a net increase in financial position of $2.5b; see table 33H. National general government decreased its liabilities by $0.2b in the June quarter 2003 and increased its financial assets by $2.6b to record a net change in financial position of $2.8b. Assets increased mostly due to a $1.4b rise in other accounts receivable. The decrease in liabilities was mainly due to a drop in issuance of one name paper of $2.0b. At the end of June 2003, national general government had total liabilities of $181.3b and total financial assets of $96.1b.

Transactions in state and local general government financial assets were $0.4b in the June quarter 2003, while transactions in total liabilities were $0.7b, resulting in a decrease in financial position of $0.3b. At the end of the quarter, state and local general government had total liabilities of $95.2b and total financial assets of $125.5b.

Change in financial position

National government net issue of debt securities

The accompanying graph illustrates the national general government’s bond issuance, with a net increase of $2.0b in treasury bonds during the quarter. Redemptions of short term debt security liabilities were $2.0b during the quarter.

HOUSEHOLDS

Summary

Households borrowed a total of $31.7b during the quarter with borrowing in the form of loans being the largest component, $32.0b. Deposit assets increased by $4.5b, of which bank deposits accounted for $5.8b. Net contributions to life insurance and pension fund reserves were $7.1b while claims on unfunded superannuation schemes were $1.1b.

Households purchased a net $0.1b in equities during the June quarter 2003, the major contributors being purchases of $1.9b of other insurance corporation shares and $0.1b in national public non-financial corporations shares. These were offset by the $1.7b sale of private non-financial corporation shares, and the $0.1b sale of life insurance shares.

At the close of the quarter, households' stock of financial assets was $1,287.4b. This was up $52.1b from the previous quarter, following net transactions of $18.0b and valuation increases of $70.1b. Major asset class holdings were net equity in reserves of life insurance corporations and pension funds, $534.6b, currency and deposits, $326.8b, equities, $219.5b, and unfunded superannuation claims, $135.2b.

Household net borrowing and debt to liquid asset ratio

Households borrowed a net $32.0b during the quarter in the form of loans, of which bank loans accounted for $24.4b, mainly for the purpose of housing. This borrowing raised household bank loan liabilities to $490.8b and total household liabilities to $693.4b at the end of the quarter.

The graph below illustrates that the debt to liquid asset ratio at 30 June 2003 was at 120%, a rise of 2 percentage points on the revised previous quarter ratio. During the June quarter the ratio was influenced by the overall increase in household borrowing for the quarter (up 5%) and the $14.6b valuation increase in households' share portfolio.

Insurance and Pension Claims

During the June quarter 2003 households' net equity in reserves of pension funds increased $26.8b, made up of $10.2b net contributions and $16.6b valuation increases, bringing household net equity in pension funds to $493.5b.

Net equity in reserves of life insurance corporations decreased by $1.0b, made up of $3.1b net decrease in transactions and $2.1b valuation increases, bringing the household net equity in life insurance to $41.1b.

Households' unfunded superannuation claims increased by $1.1b during the quarter. Prepayments of premiums and claims against reserves in general insurance corporations decreased by $0.3b.

REST OF THE WORLD

Summary

Non-residents invested a net $30.6b in Australian financial assets during the June quarter 2003. The largest net increases were in purchases of bonds, $18.3b (of which $7.2b and $6.9b were issued by other depository corporations and banks respectively), equities, $10.7b (of which, $10.3b was issued by private non-financial corporations) and holdings of currency and deposits, $3.9b. Non-residents reduced their holdings of one name paper by $5.7b. Overall, the value of Australian financial assets held by non-residents at the end of the quarter was up $26.1b from the previous quarter, made up of $30.6b in transactions and $4.5b valuation decreases.

Australian residents purchased foreign financial assets worth $17.7b during the June quarter 2003. They increased their holdings of all assets classes. The largest net increases by residents were in holdings of currency and deposits, $5.4b, purchases of bonds, $3.9b and purchases of equity, $3.6b. Overall, the total value of foreign assets held by Australian residents increased to $486.0b at the end of the quarter.

Net purchases of equities

The accompanying graph shows that during the June quarter 2003 non-residents purchased a net $10.7b in equities, an increase of $7.5b compared with the March quarter 2003.

Net purchases of bonds

The accompanying graph shows that non-residents purchased $18.3b of Australian bonds during the June quarter 2003, an increase of $12.3b compared with the March quarter 2003.

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